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‘Under protest’ – the new exchange control buzzword

Why exchange control regulation seems unconstitutional.

So the exciting news last week was that the South African Reserve Bank (Sarb) was ordered to pay R250 million (plus interest) to Mark Shuttleworth, who in turn will be using these funds for “the greater good”.

Let’s take a deeper look at the Supreme Court of Appeal judgement. Ignoring for a moment the case details and judgement itself, what stands out to me is that the judgement is littered with remarks about unconstitutionality and unfairness. For example, “This unbridled discretion creates a system of non-participative rule making, so it is contended. This is said to be inconsistent with the right to procedurally fair administrative action.”

Sarb will probably claim that it regularly liaises with the banks, the South African Institute of Chartered Accountants (Saica) and the Law Society. But ask just about any accountant or auditor who works in this space what their thoughts are. Sarb often declines requests without providing a reason. If pushed, you might be lucky to get “It’s out of line of policy” which isn’t really a reason, now is it? Spurious queries are often raised as replies, an issue that I see is clearly not appreciated by the Supreme Court.

The judgement also states “He (Mark Shuttleworth) accepts that exchange control is necessary. He contended, however, that many facets of the current regime is unconstitutional.” This is undeniably so. There may be times when the authorised dealer banks’ actions and the Sarb’s decisions are relatively efficient and fair but they often are definitely not. Yes, we understand that the Minister of Finance must be allowed to make regulations but the underlying injustice that has slowly crept in irks, a lot.

So what makes these regulations unconstitutional? Well for a start, Sarb has enough power in terms of these regulations to bully you into submission by blocking all of your bank accounts without needing to bother going to court (see Why South Africans are being held to ransom). For all practical intents and purposes, Sarb is judge, jury and executioner here. Sometimes merely a suspicion of a contravention is enough for a report about you – sorry, a “placing on record” – from your bank to Sarb. The onus can too easily shift from the State having to prove your guilt to you needing to prove your innocence.

It’s all a bit medieval – with a hint of “Total Onslaught” era flavouring. I therefore find it quite ironic that Blade Nzimande of the SACP is now, in effect, staunchly defending what is arguably the last piece of apartheid legislation by attacking Shuttleworth on this issue. But I digress.

There is an exchange control regulation that allows an appointed official of the Financial Surveillance (Exchange Control) Department to search any premises without a search warrant. That may have been how it was in 1985, but in 2014 how does one come to any conclusion other than form the opinion that this is inconsistent with the Constitution?

Sarb continues to claim that it cannot directly handle applications from the public due to a lack of capacity. It won’t even accept applications from professional advisors. Why? Is it fair to put this type of regulatory control in place and then claim a lack of capacity?

The current system has an unacceptably low level of accountability, fairness, administrative justice, oversight or redress to be any part of a modern constitutional democracy. In the greater scheme of South Africa’s many challenges, this problem is an “easy fix”. The smart thing for the National Treasury to do now is speedily put mechanisms in place that reintroduce efficiency, clarity and fairness. An exchange control ombud would be a good start. Even if for no other reason than to have to fight less court cases.

For now, if you don’t feel that a Sarb decision is fair or reasonable, or you’re unhappy with what your authorised dealer tells you is a Sarb requirement, then comply and pay any penalty (as well as your bank’s exchange control charge) “under protest” until we have a more administratively just system.

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